6. Directors Can Act Only As A Board

The acts of a director, or of all individually, are personal acts, and do not bind their bank. They may think separately just as they would if they were together, but the law has made a plain rule that can not be disregarded. And if it were, it might lead to endless trouble. A corporation might be converted into a wandering, uncertain affair, without any well-defined course of action. To guard against such a perversion of its objects, the directors can act only as a board in a formal manner.

Directors may render their bank liable by causing a knowingly false statement or report to be issued concerning its financial condition with the view of deceiving its customers, if it has the intended effect. Such reports have been issued by directors on more than one occasion. A clear distinction must be made between the cases in which they know the report is incorrect and the cases in which they honestly believe the report is correct, though in fact it is not. In the one case they have committed a palpable fraud; in the other they have simply erred. But, it may be asked, why should the bank be held responsible? The shareholders are innocent, they never elected the directors to do such a wicked thing. A broad principle of law determines the bank's liability. For any act done by an agent within the general scope of his authority, his principal is liable. A director is an agent of his bank, and it is within the general scope of his authority to make reports concerning its condition. If, therefore, he knows that these are not true and others suffer thereby, his bank is liable for the consequences.

7. Specific Duties

So far as the laws require directors to do specific things, make and sign reports, and the like, these duties can not be evaded. But it is not possible for a bank director to have a knowledge of all the transactions of his bank, especially if it be a large one; indeed, no officer knows all, and it would be very unreasonable to expect a director to know about the multitudinous details. He must not be negligent, and above all he must not be guilty of any fraud, either by participating, or by shutting his eyes when he imagines or has some reason tor suspecting that others are doing wrong. Beyond this it is difficult to define his duties and responsibilities.

With this general description of the duties of directors, let us state the more specific duties that are imposed on them.

First. They must select competent officers. In performing this duty they may fall into error, but they must exercise their best judgment in selecting them. Furthermore, whenever they discover that an officer is incompetent or unworthy of his office, it is their obvious duty to correct the: blunder. Many a director dislikes to incur the ill will of others, especially of his friends and acquaintances, and has refrained from acting when his duty plainly told him that he ought

Second. They must exercise a general supervision over all the affairs of the bank, observe the laws, and prevent, as far as within their power, their employes from violating them.

Third. Having chosen official to conduct the business of the bank, this must be necessarily left largcly to them. Even the lending of its resources as we have seen can be left largely to the president or other designated officer, or a finance committee

Fourth. They must sign reports and do such other specific things as the law prescribes.

Fifth. They must declare the dividends earned by the bank, and in this, as in every other matter, they must act honestly. They must, therefore, not declare a dividend in excess of earnings. There have been many occasions in which directors of banks have declared dividends that were not earned for the purpose of advancing the price of their stock and selling out. Such action is a palpable fraud. They are not liable, however, if they have made an honest mistake in reckoning the worth of their bank's assets or profits. But when they have acted otherwise, and the dividend declared has not been earned and is not taken out of profits earned at any time, this is a gross violation of the national banking law, as well as the banking laws of the states, for it is taken out of the capital, and consequently the institution has just so much less than it purports to have. For such an act they are personally liable.

Again, directors may be compelled to declare dividends when the profits are sufficient and they are unwilling to divide them. It is true that some banks, especially in their earlier years, retain all their profits to swell their surplus fund, and occasionally a growl is heard from some shareholder. Of course, he loses nothing, for the value of his stock is correspondingly increased. If it is worth par at the beginning and the first year his bank earns a net profit of ten per cent, his stock is worth one hundred and ten, and if sold would probably bring its full value. If all the profits are retained because this is deemed to be the wiser policy, shareholders can not appeal to the courts for a division. Only in cases in which directors evidently act in bad faith in retaining them can the power of the courts be invoked to compel a division.